UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF NEW YORK
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In re: Chapter 7
DAVID BIRNBAUM, Case No. 11-50359-ess
a/k/a DAVID GUGGENHEIM,
a/k/a DAVID B. GUGGENHEIM,
a/k/a DAVID BIRNBAUM GUGGENHEIM,
Debtor.
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GUGGENHEIM CAPITAL, LLC and
GUGGENHEIM PARTNERS, LLC, Adv. Pro. No. 12-1011-ess
Plaintiffs,
-against-
DAVID BIRNBAUM,
Defendant.
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MEMORANDUM DECISION ON MOTION FOR SUMMARY JUDGMENT
Appearances:
Gregory Kopacz, Esq.
McDermott Will & Emery LLP
340 Madison Avenue
New York, NY 10173
Attorneys for Guggenheim Capital, LLC and
Guggenheim Partners, LLC
Ronald D. Coleman, Esq.
Scott D. Simon, Esq.
Goetz Fitzpatrick LLP
One Penn Plaza
Suite 4401
New York, NY 10119
Attorneys for David Birnbaum
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HONORABLE ELIZABETH S. STONG
UNITED STATES BANKRUPTCY JUDGE
Introduction
Before the Court is the motion of Guggenheim Capital, LLC and Guggenheim Partners,
LLC (together, “Guggenheim”) seeking summary judgment that the debt owed to them by David
Birnbaum, the debtor in this Chapter 7 case, is nondischargeable pursuant to Bankruptcy Code
Section 523(a)(6), because it arises from a willful and malicious injury by Birnbaum to
Guggenheim or its property.
Guggenheim seeks summary judgment pursuant to Federal Rule of Civil Procedure 56,
made applicable here by Bankruptcy Rule 7056, on grounds that this Court should give
preclusive effect to a judgment and fee award in its favor entered by U.S. District Court for the
Southern District of New York (the “District Court”) and affirmed by the U.S. Court of Appeals
for the Second Circuit in Guggenheim’s trademark infringement action against Birnbaum and an
affiliated entity. Guggenheim argues that based on the District Court’s findings in that action,
Birnbaum should be collaterally estopped from re-litigating in this forum whether he acted
willfully, whether he acted maliciously, and whether his actions caused injury.
Courts should not move too quickly to conclude that collateral estoppel bars a defendant
from defending an action. Times and circumstances change, and courts must balance many
considerations when collateral estoppel is invoked. From a defendant’s perspective, the
consequences of collateral estoppel may seem harsh. But there are considerations on the other
side of the balance as well. A plaintiff should not need to prove the same facts over and over
again in order to obtain meaningful relief. As a result, the requirements of collateral estoppel
call for the moving party to demonstrate that the issue is substantially identical, that the issue
was actually litigated and determined, that the party to be estopped had a full and fair
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opportunity to litigate the issue, and that the determination of the issue was necessary to the first
court’s final judgment. These are challenging requirements, and each must be satisfied for a
defendant to be barred from re-litigating an issue. But where – as here – these requirements are
met, then the plaintiff should not be required to litigate the issue again.
Jurisdiction and Authority To Enter a Final Judgment
This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 1334(b) and
157(b)(1). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). To the extent that
Guggenheim’s nondischargeability claim is finally adjudicated on this motion, this Court may
enter an appropriate order and judgment. In the event that the District Court concludes that this
Court may not enter a final order or judgment consistent with Article III of the United States
Constitution on this claim, this Memorandum Decision and the accompanying Order may be
treated as proposed findings of fact and conclusions of law pursuant to 28 U.S.C. § 157(c).
Background
The Bankruptcy Case
On December 12, 2011, David Birnbaum filed a petition for relief under Chapter 7 of the
Bankruptcy Code. Birnbaum’s bankruptcy petition notes several aliases, including David
Guggenheim, David B. Guggenheim, and David Birnbaum Guggenheim. In his Statement of
Financial Affairs, Birnbaum indicated that in the year preceding his bankruptcy filing, he was a
defendant in an action captioned Guggenheim Capital, LLC v. Catarina Pietra Toumei, Case No.
10-8830, pending in the U.S. District Court for the Southern District of New York (the “District
Court Action”).
The District Court Action
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On November 22, 2010, Guggenheim commenced the District Court Action against
Birnbaum and others by filing a complaint alleging violations of the Lanham Act, including
trademark infringement and trademark counterfeiting, the Racketeer Influenced and Corrupt
Organizations Act, and New York law.
That same day, the District Court entered a temporary restraining order enjoining
Birnbaum from using Guggenheim’s marks, and directing him to respond to Guggenheim’s
expedited discovery requests and to preserve all records related to that matter. Some four weeks
later, on December 17, 2010, the District Court converted the temporary restraining order into a
preliminary injunction, enjoining Birnbaum from using Guggenheim’s marks.
After those orders were entered, the District Court found that Birnbaum continued to
counterfeit and infringe the Guggenheim marks as part of a scheme to defraud investors. Four
months later, the District Court issued an order to show cause why contempt sanctions should
not be imposed for Birnbaum’s alleged failure to comply with that court’s preliminary injunction
order.
Birnbaum participated in the District Court Action in several ways. He appeared at the
December 17, 2010 preliminary injunction hearing and the December 30, 2010 contempt
hearing. Birnbaum also sought and received extensions of time to respond to Guggenheim’s
discovery requests, sought and was denied a stay of discovery pending the resolution of the
related criminal investigation, and sought and was denied a modification of the District Court’s
preliminary injunction.
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The District Court Judgment
On J uly 14, 2011, based on Birnbaum’s continuing conduct within and outside the
District Court Action, including his violations of the preliminary injunction and discovery
orders, and his continuing counterfeiting and infringement of Guggenheim’s trademarks, the
District Court sanctioned Birnbaum and entered a default judgment against him and Dabir
International, Ltd., an entity that he controlled (the “District Court J udgment” or “J udgment”).
The District Court determined that Birnbaum intentionally injured Guggenheim by his
counterfeiting and infringement of Guggenheim’s trademarks, and that his conduct was willful.
J udgment ¶¶ 51, 53-54. Specifically, the District Court found:
Plaintiffs’ Guggenheim Marks are famous and federally registered. Defendants
are using “Guggenheim” marks that are identical or virtually indistinguishable
from Plaintiffs’ Guggenheim Marks for the same services identified in Plaintiffs’
federal trademark registrations. Defendants’ conduct has caused actual confusion
in the marketplace, including among sophisticated investors. Defendants’ use of
Plaintiffs’ Guggenheim Marks is a bad faith attempt to trade off of the goodwill
and reputation of Plaintiffs’ famous marks. Defendants’ conduct is likely to
cause a likelihood of confusion and a likelihood of dilution with respect to
Plaintiffs’ “Guggenheim” marks in violation of the Lanham Act and New York
law.
Defendants’ conduct constitutes the intentional trafficking in counterfeit marks in
violation of the Lanham Act and New York law, including 15 U.S.C. § 1116(d)
. . . . Because Defendants’ conduct is willful, intentional, and in bad faith . . . the
Court finds that statutory damages in the amount of $250,000 per counterfeit
mark are appropriate under the circumstances of this case.
Defendants’ unlawful conduct has been knowing and intentional and there are no
“extenuating circumstances” for such conduct. Plaintiffs are entitled to an award
of their reasonable attorneys’ fees and costs under the Lanham Act and New York
law.
J udgment ¶¶ 51, 53-54 (emphasis added).
As the District Court J udgment indicates, the District Court made several findings
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concerning Birnbaum’s intent and state of mind. The District Court found, among other things,
that Birnbaum’s conduct was “a bad faith attempt” to exploit the “goodwill and reputation” of
the Guggenheim trademarks, that Birnbaum’s actions amounted to “intentional trafficking in
counterfeit marks,” and that his actions were “willful, intentional, and in bad faith.” J udgment
¶¶ 51, 53. The District Court also found that Birnbaum’s use of the Guggenheim marks created
a “likelihood of confusion” and that there were “no ‘extenuating circumstances’” that warranted
his conduct. J udgment ¶¶ 51, 53-54.
The District Court’s award of damages, fees, and costs also reflects its findings
concerning Birnbaum’s intent and state of mind. The District Court awarded Guggenheim
“statutory damages for trademark counterfeiting in the amount of $1.25 million in lieu of an
award of actual damages and profits, pursuant to 15 U.S.C. § 1117(c).” J udgment ¶ 4.
Concluding that Birnbaum’s “unlawful conduct [was] knowing and intentional and there are no
‘extenuating circumstances’ for such conduct,” the District Court also awarded Guggenheim
attorneys’ fees and costs “under the Lanham Act and New York law,” and directed Guggenheim
to file a declaration documenting their costs and attorneys’ fees. J udgment ¶ 54. On J anuary 31,
2012, the District Court entered an order (the “Fees Order”) awarding Guggenheim attorneys’
fees of $405,901.75 and costs of $42,967.92. Fees Order 20.
The Second Circuit Decision
On August 12, 2011, Birnbaum appealed the District Court J udgment to the Second
Circuit Court of Appeals, and argued, among other things, that the District Court abused its
discretion when it entered the J udgment. In affirming the decision of the District Court, the
Second Circuit noted that Birnbaum not only failed to answer the complaint but also failed to
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comply with the District Court’s discovery orders, disrupted his own deposition, and violated a
preliminary injunction precluding the use of the Guggenheim mark. Guggenheim Capital, LLC
v. Birnbaum, 722 F.3d 444, 450 (2d Cir. 2013). The Second Circuit concluded that the District
Court did not abuse its discretion in entering judgment on default pursuant to Federal Rule of
Civil Procedure 37, based on that court’s determination that Birnbaum willfully defaulted after
being “sufficiently warned” about the risks of failing to comply with court orders, including
orders directing him to respond to the complaint and discovery, and by continuing to use the
Guggenheim name and trademarks in violation of the temporary restraining order and
preliminary injunction. Guggenheim, 722 F.3d at 451-52.
In addition, the Second Circuit concluded that even if default judgment under Rule 37
was not warranted, “the entry of the default judgment under [Federal Rule of Civil Procedure] 55
was certainly supported by the record.” Guggenheim, 722 F.3d at 454. The Second Circuit
concluded that the District Court did not abuse its discretion in entering judgment pursuant to
Rule 55, because Birnbaum’s default was willful and he did not present a meritorious defense.
Guggenheim, 722 F.3d at 455.
This Adversary Proceeding and the Relief Sought
Birnbaum commenced this Chapter 7 bankruptcy case on December 12, 2011, some five
months after the District Court entered the J udgment, and some two months before the District
Court entered the Fees Order. On J anuary 12, 2012, Guggenheim commenced this adversary
proceeding by filing a complaint, and on February 9, 2012, Guggenheim filed an amended
complaint (the “Complaint”), seeking a determination that the debt arising from the District
Court J udgment and Fees Order is nondischargeable under Bankruptcy Code Section 523(a)(2)
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because it arises from false pretenses, a false representation, or actual fraud; under Section
523(a)(4) on grounds that it arises from Birnbaum’s fraud or defalcation while acting in a
fiduciary capacity; and under Section 523(a)(6) on grounds that it arises from willful and
malicious injury to Guggenheim’s property.
The Complaint describes the history of the District Court Action, and alleges that
Birnbaum infringed Guggenheim’s trademarks and falsely used the name “Guggenheim” in
furtherance of his nationwide scheme to defraud investors by offering “bogus” financial
consultation and investment services. Complaint ¶ 18. The Complaint alleges that Birnbaum’s
actions included conducting business meetings and discussions with potential investors and
“distributing advertising materials, emails, letters of intent, investment proposals, and purchase
agreements replete with unauthorized uses of Plaintiffs’ marks.” Complaint ¶ 20. The
Complaint also alleges that the District Court issued the temporary restraining order and the
preliminary injunction enjoining Birnbaum from using the Guggenheim names and trademarks,
and that Birnbaum continued to use those names and trademarks despite the entry of these and
other orders. Complaint ¶ 22.
In addition, the Complaint describes Birnbaum’s participation in the District Court
Action. This participation includes appearing with counsel on December 17, 2010 at a
preliminary injunction hearing; appearing on December 30, 2010 at a contempt hearing
concerning his continued use of Guggenheim’s marks in violation of the temporary restraining
order and the preliminary injunction; making a motion on J anuary 26, 2011 to modify the
preliminary injunction for permission to use the “David Guggenheim” and “David B.
Guggenheim” names in connection with importing and distributing distilled spirits; and
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appearing on April 4, 2011 at a hearing to show cause why a default judgment should not be
entered against him based on his continuing use of the “Guggenheim” name in violation of the
temporary restraining order and preliminary injunction. Complaint ¶¶ 26, 28, 31.
On March 1, 2012, Birnbaum filed an answer (the “Answer”) to the Complaint.
Birnbaum acknowledges that the District Court made certain findings and determinations, and
states that they were “based on plaintiffs’ erroneous and unsubstantiated submissions which
defendant could not rebut because of his reliance on his privilege against self-incrimination
under the Fifth Amendment upon the advice of counsel.” Answer ¶ 33. Birnbaum also states
that the District Court’s rulings are the subject of a pending appeal, and otherwise denies the
allegations of the Complaint. Answer ¶ 35.
Birnbaum asserts several “affirmative defenses” to Guggenheim’s Section 523 claims.
These include that Guggenheim is Birnbaum’s mother’s name, that he has used the name
Guggenheim throughout his life, and that his actions in using his family name “at all times
lacked malice or willfulness to cause injury.” Answer pp. 6-7. Birnbaum also states, in
substance, that the District Court J udgment and Fees Order are not entitled to preclusive effect
here because he “did not substantially participate in the underlying litigation,” due to
“procedural irregularities and other issues,” and that he was not represented by counsel in certain
of the District Court Action proceedings. Answer pp. 7-10.
In response to Guggenheim’s Section 523(a)(6) claim, Birnbaum states that Guggenheim
does not allege and cannot prove actual injury, and that Guggenheim does not allege and cannot
prove malice, “as is required to allege a claim of willful or malicious injury” under Bankruptcy
Code Section 523(a)(6). Answer pp. 14-15.
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The Motion for Summary Judgment
By this motion, Guggenheim seeks summary judgment solely on its Section 523(a)(6)
claim, and only that claim is addressed here. This claim states that “[t]he claims and findings
embodied in the District Court J udgment and the Fees Order constitute claims against Defendant
for willful and malicious injury by Defendant to Plaintiffs or to their property,” and should be
excepted from Birnbaum’s discharge pursuant to Bankruptcy Code Section 523(a)(6).
Complaint ¶¶ 45-46. Guggenheim argues that the District Court J udgment and Fees Order are
entitled to preclusive effect under the doctrine of collateral estoppel, and that the District Court’s
findings establish each element of this claim.
Guggenheim also argues, among other things, that Birnbaum “substantially participated”
in the District Court Action and had the opportunity to defend on the merits, although he did not
always choose to do so. Guggenheim asserts that this satisfies the “actually litigated”
requirement for collateral estoppel to apply. And Guggenheim argues that the same standard of
proof by a preponderance of the evidence applies in the District Court Action and here. That is,
Guggenheim argues that this Court should give preclusive effect to the District Court’s
determination that there is no genuine dispute of material fact as to each element of its Section
523(a)(6) claim, and that it is entitled to a determination that the District Court J udgment and
Fees Order debts are nondischargeable as a matter of law.
Birnbaum filed a response (the “Response”) and argues, in substance, that this Court
should not give preclusive effect to the District Court’s determinations because he did not have
an opportunity to litigate the underlying claims in that forum. As a consequence, he argues that
the matters were not “actually litigated” and collateral estoppel cannot apply. Response 8.
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Birnbaum denies “the claims of trademark counterfeiting which formed the basis of the judgment
against him,” and asserts that this is the “first time” he has had the opportunity to deny these
claims. Response 6(n).
Specifically, Birnbaum asserts, among other things, that the District Court J udgment and
Fees Order were “entered based on a number of purported defaults by [Birnbaum] . . . which
were the direct result of the Debtor’s assertion of . . . his privilege against self-incrimination
under the Fifth Amendment.” Response 5(i). And Birnbaum states that the District Court
mischaracterized his assertion of that privilege as a failure to oppose Guggenheim’s motion for a
default judgment.
On these grounds, among others, Birnbaum argues that there are “unresolved factual
disputes that relate to . . . issue[s] which [are] material to the outcome of the litigation.”
Response 10. Birnbaum also argues that the burden of proof in this nondischargeability action is
the more stringent clear and convincing standard, as opposed to the lower preponderance of
evidence standard that applies in a civil trademark infringement proceeding. For these and other
reasons, Birnbaum argues that collateral estoppel does not apply, and that Guggenheim is not
entitled to summary judgment on its Section 523(a)(6) claim. Response 10.
On November 4, 2013, the Court held an initial conference on the Motion at which
Guggenheim and Birnbaum, by counsel, appeared and were heard. On March 11, 2014, the
Court held a continued conference and hearing on the Motion, at which Guggenheim and
Birnbaum, by counsel, appeared and were heard, and the Court reserved decision.
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Discussion
The Summary Judgment Standard
Federal Rule of Civil Procedure 56(c), made applicable to this Adversary Proceeding by
Bankruptcy Rule 7056, provides that summary judgment is appropriate “if the movant shows
that there is no genuine dispute as to any material fact and the movant is entitled to judgment as
a matter of law.” Fed. R. Civ. P. 56(a). A fact is “material” if it “might affect the outcome of the
suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A
dispute is “‘genuine’ . . . if the evidence is such that a reasonable jury could return a verdict for
the nonmoving party.” Id.
The moving party has the burden of demonstrating the absence of a genuine dispute as to
any material fact, and all of the inferences to be drawn from the underlying facts must be viewed
in the light most favorable to the party opposing the motion. See Anderson, 477 U.S. at 249,
255; Hayut v. State Univ. of N.Y., 352 F.3d 733, 743 (2d Cir. 2003). Accordingly, the moving
party must first demonstrate that there is no genuine dispute of material fact as to each element
of its claim. If it does not, then summary judgment will be denied. See, e.g., Smith v. Goord,
2008 WL 902184, at *4 (N.D.N.Y. Mar. 31, 2008), aff’d, 375 F. App’x 73 (2d Cir. 2010) (citing
Anderson, 477 U.S. at 250 n.4).
If the moving party meets this initial burden,“the burden then shifts to the nonmoving
party to come forward with evidence sufficient to create a genuine dispute as to a material fact
for trial.” Silverman v. United Talmudical Academy Torah Vyirah, Inc. (In re Allou Distribs.,
Inc.), 446 B.R. 32, 49 (Bankr. E.D.N.Y. 2011). The non-moving party must present “significant
probative evidence” that a genuine dispute as to a material fact exists. Anderson, 477 U.S. at
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255. The non-moving party “must do more than simply show that there is some metaphysical
doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586 (1986). “Where the record taken as a whole could not lead a rational trier of fact to find for
the nonmoving party,” there is no genuine dispute as to a material fact for trial and summary
judgment is appropriate. Matsushita, 475 U.S. at 587. See McClellan v. Smith, 439 F.3d 137,
144 (2d Cir. 2006) (citing Matsushita, 475 U.S. at 586).
The Collateral Estoppel Doctrine
Collateral estoppel “bars ‘repetitious suits involving the same cause of action’ once ‘a
court of competent jurisdiction has entered a final judgment on the merits.’” NML Capital, Ltd.
v. Banco Central de la Republica Argentina, 652 F.3d 172, 184 (2d Cir. 2011), cert. denied, 133
S. Ct. 23 (2012) (citing United States v. Tohono O’Odham Nation, 131 S. Ct. 1723, 1730
(2011)). A “judgment in the prior suit precludes relitigation of issues actually litigated and
necessary to the outcome of the first action.” Parklane Hosiery Co. v. Shore, 439 U.S. 322, 327
n.5 (1979) (citations omitted). As the Restatement (Second) of J udgments states:
When an issue of fact or law is actually litigated and determined by a valid and
final judgment, and the determination is essential to the judgment, the
determination is conclusive in a subsequent action between the parties, whether
on the same or a different claim.
Restatement (Second) of Judgments § 27 (1982).
The Supreme Court has confirmed that collateral estoppel may be invoked in Section 523
actions. As the Court noted, “collateral estoppel principles do indeed apply in discharge
exception proceedings pursuant to § 523(a).” Grogan v. Garner, 498 U.S. 279, 284 n.11 (1991).
The Supreme Court also determined that “the ordinary preponderance standard . . . govern[s] the
applicability of all the discharge exceptions.” Grogan, 498 U.S. at 288. As a consequence, the
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Supreme Court observed, “a bankruptcy court could properly give collateral estoppel effect to
those elements of the claim that are identical to the elements required for discharge and which
were actually litigated and determined in the prior action. See Restatement (Second) of
Judgments § 27 (1982).” Grogan, 498 U.S. at 284. See Indo-Med Commodities v. Wisell (In re
Wisell), 494 B.R. 23, 29 (Bankr. E.D.N.Y. 2011) (citing Grogan). And as the Second Circuit
noted, “[b]ankruptcy proceedings may not be used to re-litigate issues already resolved in a court
of competent jurisdiction.” Kelleran v. Andrijevic, 825 F.2d 692, 695 (2d Cir. 1987), cert.
denied, 484 U.S. 1007 (1988).
Courts recognize that the application of the collateral estoppel doctrine differs based on
the forum in which first judgment was entered. As several courts have found, “[when] the issues
sought to be precluded were decided by a federal court, as in the case at bar, the Bankruptcy
Court must apply the theoretically uniform federal common law of collateral estoppel.” FTC v.
Wright (In re Wright), 187 B.R. 826, 832 (Bankr. D. Conn. 1995). See Smith v. Entrepreneur
Media, Inc. (In re Smith), 2009 Bankr. LEXIS 4582 (9th Cir. B.A.P. Dec. 17, 2009), aff’d, 465 F.
App’x. 707 (9th Cir. 2012) (stating that “[t]he application of issue preclusion to a prior federal
judgment is determined by federal law”); Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402
U.S. 313, 324 n.12 (1971) (observing that “[t]his court has noted, ‘It has been held in non-
diversity cases since Erie R. Co. v. Tompkins [304 U.S. 64 (1938)], that the federal courts will
apply their own rule of res judicata.’”).
Where, as here, the claims arise under the federal Lanham Act, “federal law governs the
collateral estoppel . . . effect of any judgment on them.” Rigoni Di Asiago S.P.A. v. Mucci (In re
Mucci), 458 B.R. 802, 809 n.10 (Bankr. D. Conn. 2011). And “‘collateral estoppel may be
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appropriate where there is ample support in the record for concluding that the district court based
its Lanham Act judgment on the defendant’s willful and malicious conduct.’” Mucci, 458 B.R.
at 810 (quoting Louis Vuitton Malletier v. Ortiz (In re Ortiz), 2009 WL 2912497, at *4 (Bankr.
D.P.R. J une 4, 2009)).
Several requirements must be met in order for a prior federal judgment to have preclusive
effect. As the Second Circuit has observed:
Federal principles of collateral estoppel, which we apply to establish the
preclusive effect of a prior federal judgment, require that “(1) the identical issue
was raised in a previous proceeding; (2) the issue was actually litigated and
decided in the previous proceeding; (3) the party had a full and fair opportunity to
litigate the issue; and (4) the resolution of the issue was necessary to support a
valid and final judgment on the merits.”
Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir. 2006), quoting Purdy v. Zeldes, 337 F.3d 253,
258 & n.5 (2d Cir. 2003) (internal quotation marks omitted).
When collateral estoppel is invoked by a plaintiff in the context of a summary judgment
motion, the plaintiff bears the burden on all elements, except that the party opposing the
application of collateral estoppel bears the burden of “showing that the prior action did not
afford a full and fair opportunity to litigate.” Kulak v. City of New York, 88 F.3d 63, 72 (2d Cir.
1996).
Substantial Identity of Issues The first requirement, that the issues are substantially
identical in the pending and prior proceedings, calls for the court to ascertain:
whether the issues presented by this litigation are in substance the same as those
resolved [in the prior litigation]; whether controlling facts or legal principals have
[not] changed significantly since the [prior litigation]; and finally, whether special
circumstances warrant exception to the normal rules of preclusion.
Montana v. U.S., 440 U.S. 147, 155 (1979).
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“Direct identity of issues” is not required for collateral estoppel to apply. Yash Raj Films
(USA) v. Ahmed (In re Ahmed), 359 B.R. 34, 40 (Bankr. E.D.N.Y. 2005) (citing Montana, 440
U.S. at 155). Courts in this Circuit have found that the issues presented in the two actions need
not be absolutely identical, although “the legal standards governing their resolution [must not be]
significantly different.” Cerny v. Rayburn, 2013 WL 5295299, at *7 (E.D.N.Y. Aug. 20, 2013).
Rather, “it is sufficient that ‘the issues presented in [the earlier litigation] are substantially the
same as those presented by [the later] action.’” Id. (emphasis added, citations omitted).
Actual Litigation and Determination of the Issue The second requirement, that the issue
was actually litigated and decided in the prior proceeding, is satisfied where the issue was
“raised by the pleadings or otherwise placed in issue . . . .” Evans v. Ottimo, 469 F.3d 278, 282
(2d Cir. 2006). Courts recognize that where the defendant does not appear or participate in the
proceedings in any way, and a default judgment is entered, that judgment may not merit
preclusive effect. See, e.g., Ahmed, 359 B.R. at 44. At the same time, a full trial on the merits is
not a prerequisite for collateral estoppel to apply. Rather, preclusion is appropriate where “[t]he
issue [was] raised by the pleadings or otherwise placed in issue and actually determined in the
prior proceeding.” Dolan v. Roth, 325 F. Supp. 2d 122, 133 (N.D.N.Y. 2004), rev’d in part on
other grounds, 170 F. App’x 743 (2d Cir. 2006).
An additional consideration may arise when the party against whom collateral estoppel is
invoked asserted his or her Fifth Amendment privilege against self-incrimination in the prior
proceeding. Courts, including bankruptcy courts, have consistently found that the assertion of
this Constitutional privilege does not prevent the application of collateral estoppel. “Nearly all
bankruptcy courts that have considered the issue conclude that ‘even when a party invokes his
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Fifth Amendment privilege in the prior suit, the ‘actually litigated’ requirement for purposes of
collateral estoppel may nevertheless be satisfied.” Digital Sys. Engineering, Inc. v. Moreno (In
re Moreno), 414 B.R. 485, 490 (Bankr. W.D. Wis. 2009) (quoting FTC v. Abeyta (In re Abeyta),
387 B.R. 846, 853 (Bankr. D.N.M. 2008) (citing cases)). As another court observed, where a
defendant in a prior proceeding “chose to remain silent when the stakes were highest,” the
conclusion that he “[is] now bound by that decision in the present litigation is a fair and
reasonable” one. Samirah v. Sabhnani, 772 F. Supp. 2d 437, 443 (E.D.N.Y. 2011).
Full and Fair Opportunity To Litigate the Issue The third requirement, that the party
against whom collateral estoppel is invoked had a full and fair opportunity to litigate the issue,
calls for the court to determine whether that party “was fully able to raise the same factual or
legal issues” in the prior litigation. LaFleur v. Whitman, 300 F.3d 256, 274 (2d Cir. 2002).
As distinct from the “actually litigated” element, the requirement that the party opposing
collateral estoppel had a full and fair opportunity to litigate the issue requires the court to
examine whether the party “was fully able to raise the same factual or legal issues . . . assert[ed
in the prior proceeding].” Id. So, for example, the Second Circuit declined to apply principles
of collateral estoppel where the defendant was deprived of a fair opportunity to litigate based on,
among other considerations, the trial judge’s statements that “clearly abrogated his
‘responsibility to function as a neutral, impartial arbiter’” and demonstrated “fundamental
misunderstanding of the basis” of the defendant’s claim. Ali v. Mukasey, 529 F.3d 478, 491 (2d
Cir. 2008). Similarly, the Seventh Circuit declined to apply collateral estoppel where an
immigration judge used language of religious intolerance, stating that it “taints the proceedings,
erodes the appearance of fairness and creates substantial uncertainty as to whether the record
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below was fairly and reliably developed.” Floroiu v. Gonzales, 481 F.3d 970, 974 (7th Cir.
2007).
Necessity of the Issue To Support the Final J udgment The fourth and final requirement
for collateral estoppel to apply, that the issue previously determined was necessary to support the
final judgment, requires the court to consider the elements of the prior claim and whether a final
judgment was entered. This assures that matters that were ancillary to the first determination,
and matters that were not finally determined, will not be invoked to bar the consideration of a
disputed issue by the second court. As one Court of Appeals noted, “‘for purposes of issue
preclusion . . . ‘final judgment’ includes any prior adjudication of an issue in another action that
is determined to be sufficiently firm to be accorded conclusive effect.’” Wolstein v. Docteroff
(In re Docteroff), 133 F.3d 210, 216 (3d Cir. 1997) (quoting Restatement (Second) of
Judgments).
The Elements of a Section 523(a)(6) Claim
In order to establish that a debt should not be discharged under Bankruptcy Code Section
523(a)(6), a plaintiff must show that the debt at issue resulted from a “willful and malicious
injury by the debtor to another entity or to the property of another entity.” 11 U.S.C. §
523(a)(6). That is, a plaintiff must establish three elements to succeed on a Section 523(a)(6)
claim – first, that the debtor acted willfully, second, that the debtor acted maliciously, and third,
that the debtor’s willful and malicious actions caused injury to the plaintiff or the plaintiff’s
property.
As to the first element, that the debtor acted willfully, the Bankruptcy Code does not set
forth a definition of “willful.” The Supreme Court has observed that “‘willful’ in [Section]
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523(a)(6) means ‘deliberate or intentional.’” Kawaauhau v. Geiger, 523 U.S. 57, 61, n.3 (1998).
See Navistar Fin. Corp. v. Stelluti (In re Stelluti), 94 F.3d 84, 87 (2d Cir. 1996) (same). The
Supreme Court also noted that the kind of intent necessary in construing this section of the
Bankruptcy Code is similar to that of intentional torts, which “generally require that the actor
intend ‘the consequences of an act,’ not simply ‘the act itself.’ Restatement (Second) of Torts
§ 8A, comment a, p. 15 (1964) (emphasis added).” Kawaauhau, 523 U.S. at 61-62. See Mucci,
458 B.R. at 810 (quoting Kawaauhau, 523 U.S. at 61). And the Supreme Court stated that “[a]
wilful disregard . . . which necessarily causes injury and is done intentionally, may be said to be
done wilfully and maliciously.” Tinker v. Colwell, 193 U.S. 473, 487 (1904).
As to the second element, that the debtor acted maliciously, the Bankruptcy Code
likewise does not set forth a definition of “malicious.” The Second Circuit has concluded that
the term “malicious” in this context means “‘wrongful and without just cause or excuse, even in
the absence of personal hatred, spite, or ill-will.’” Ball, 451 F.3d at 69 (quoting Navistar, 94
F.3d at 87). And “[t]he conduct complained of must be intended to or necessarily cause injury in
order for the debt to be determined nondischargeable.” Ahmed, 359 B.R. at 41. In Ahmed, the
court concluded that because the finding that the debtor deliberately disregarded warnings “was
necessary to the District Court’s judgment, the subsumed finding of malice may be given
preclusive effect.” Ahmed, 359 B.R. at 43. In addition, as this Court previously noted, “[m]alice
may also be implied from ‘the acts and conduct of the debtor in the context of [the] surrounding
circumstances.’” Yaj Rash Films (USA) Inc. v. Akhtar (In re Akhtar), 368 B.R. 120, 130-31
(Bankr. E.D.N.Y. 2007). This Court also noted that “a court may find malice ‘when anyone of
reasonable intelligence knows that the act in question is contrary to commonly accepted duties in
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the ordinary relationships among people, and injurious to another.’” Akhtar, 368 B.R. at 132
(citation omitted).
As to the third element, that the debtor’s actions caused injury to the plaintiff or its
property, “[t]he conduct complained of must be intended to or necessarily cause injury in order
for the debt to be determined nondischargeable.” Ahmed, 359 B.R. at 41. And in the context of
Lanham Act violations, “it is impossible to separate the ‘conduct’ of trademark infringement
from the ‘injury’ of trademark infringement.” Smith, 2009 Bankr. LEXIS 4582, at *2.
Finally, the standard of proof necessary in a Section 523 nondischargeability action is by
a preponderance of the evidence. As the Supreme Court stated, “we hold that the standard of
proof for the dischargeability exceptions in 11 U.S.C. § 523(a) is the ordinary preponderance-of-
the-evidence standard.” Grogan, 498 U.S. at 291.
Whether Guggenheim Has Shown that There Is No Genuine Dispute of Material Fact that
Birnbaum Acted Willfully
The first element of a Section 523(a)(6) claim is whether the defendant acted willfully.
To succeed on this claim, Guggenheim must establish that Birnbaum’s conduct was willful. And
to succeed on this motion for summary judgment, Guggenheim must establish that there is no
genuine dispute of material fact as to Birnbaum’s willful conduct. Guggenheim relies on the
District Court J udgment and the principle of collateral estoppel to show that there is no genuine
dispute of material fact as to this element of the claim.
In order to make that determination, this Court must examine the requirements of
collateral estoppel as applied to the willfulness element of Guggenheim’s claim. That is, this
Court must determine whether it is substantially identical to issues determined by the District
Court, whether the issue was actually litigated in that forum, whether Birnbaum had a full and
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fair opportunity to litigate the issue there, and whether it was necessary to the District Court’s
final determination that resulted in the J udgment. If these criteria are met, then Birnbaum may
be precluded from re-litigating the issue here.
Guggenheim argues that, as found by the District Court and affirmed by the Second
Circuit, Birnbaum acted willfully when he held himself out to be a member of the Guggenheim
enterprise and used the Guggenheim name and marks to recruit and defraud investors.
Guggenheim cites the District Court’s findings that “[Birnbaum’s] conduct constitutes the
intentional trafficking in counterfeit marks in violation of the Lanham Act and New York law.”
J udgment ¶ 53.
In addition, Guggenheim argues that, as found by the District Court and affirmed by the
Second Circuit, Birnbaum’s conduct was “willful, intentional, and in bad faith,” resulting in the
award of statutory damages, which are warranted only in “exceptional” cases including cases
where a defendant’s acts are found to have been willful and intentional. J udgment ¶ 53. More
specifically, Guggenheim argues that the issues decided in the District Court Action are identical
to those presented in its Section 523(a)(6) claim because findings of fact on a willful trademark
infringer’s intentional conduct are identical to findings on the infringer’s intent to cause injury.
Birnbaum responds that Guggenheim is his mother’s family name, that he has used the
name Guggenheim throughout his life, and that his actions in using his family name “at all times
lacked . . . willfulness to cause injury.” Answer 7.
Birnbaum also responds that the standard of proof in the District Court Action “differs
from that required in bankruptcy,” and as a consequence, the issues decided in the District Court
Action are not identical to the issues presented here. Response 9. Birnbaum argues that a
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plaintiff in a civil trademark infringement action must establish its claims by the lower
preponderance of the evidence standard, whereas the evidentiary standard in a dischargeability
action is the higher “‘clear and convincing’ evidentiary standard.” Response 9-10. Because
there is no identity of issues, Birnbaum asserts that this element cannot be satisfied, and
summary judgment must be denied.
Here, the record shows that the District Court made several findings as to Birnbaum’s
intent and state of mind, including his willfulness. The District Court concluded, among other
things:
[B]ad faith may be presumed where, as here, a defendant uses counterfeit marks.
[B]ad faith is also demonstrated by [Birnbaum’s] decision to offer and sell
services that are identical or nearly identical to those offered by [Guggenheim].
[Birnbaum’s] use of . . . Guggenheim Marks is a bad faith attempt to trade off of
the goodwill and reputation of [Guggenheim’s] famous marks.
Unless [Birnbaum is] permanently enjoined, [Guggenheim] will continue to suffer
irreparable injury and the public will be deceived on account o[f] [Birnbaum’s]
use of the Guggenheim name and marks.
[Birnbaum’s] conduct constitutes the intentional trafficking in counterfeit marks
in violation of the Lanham Act and New York law, including 15 U.S.C.
§ 1116(d).
. . . Because [Birnbaum’s] conduct is willful, intentional, and in bad faith . . . the
Court finds that statutory damages in the amount of $250,000 per counterfeit
mark are appropriate under the circumstances of this case.
[Birnbaum’s] unlawful conduct has been knowing and intentional and there are
not ‘extenuating circumstances’ for such conduct. Plaintiffs are entitled to an
award of their reasonable attorneys’ fees and costs under the Lanham Act and
New York law.
J udgment ¶¶ 48, 50-54.
As to the first requirement of collateral estoppel, whether the issues are substantially
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identical in this action and the prior proceeding, the record shows that the District Court
J udgment contains a number of findings and conclusions that “explicitly reference the court’s
determination that [the defendant’s] infringement was intentional or grant relief that is predicated
on intentional infringement.” Smith, 2009 Bankr. LEXIS 4582, at *9. And the J udgment
memorializes the District Court’s determinations as to Birnbaum’s willfulness in the prior
proceeding. As a consequence, these issues are substantially identical in this case and in the
District Court Action, and this requirement is met.
As to the second requirement of collateral estoppel, whether the issue was actually
litigated and determined in the prior proceeding, the record shows that the issue of Birnbaum’s
willfulness was “raised by the pleadings or otherwise placed in issue” in the District Court
Action. Dolan, 325 F. Supp. 2d at 133 (citation omitted). The record also shows that it was the
subject of extensive proceedings, including the December 17, 2010 preliminary injunction
hearing and the December 30, 2010 contempt hearing, and was addressed in detail in the District
Court J udgment. For these reasons, this issue was actually litigated and determined in the
District Court Action, and this requirement is met.
As to the third requirement of collateral estoppel, whether there was a full and fair
opportunity to litigate the issue, the record shows that, as noted above, Birnbaum’s willfulness
was the subject of extensive proceedings in the District Court, and Birnbaum had the opportunity
to participate in these proceedings. For example, Birnbaum appeared at preliminary injunction
and contempt hearings, sought and received extensions of time to respond to discovery requests,
and sought and was denied a modification of the District Court’s preliminary injunction.
Birnbaum argues that because he asserted his Fifth Amendment privilege against self-
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incrimination in the District Court Action, he did not have a full and fair opportunity to litigate
there. But case law in this Circuit holds that the choice to assert one’s Fifth Amendment
privilege in a prior litigation may bind that party in subsequent litigation, and does not serve as a
bar to the application of collateral estoppel. See, e.g., Samirah, 772 F. Supp. 2d at 444.
Accordingly, Birnbaum had a full and fair opportunity to litigate the issue of willfulness, and this
requirement is also met.
And as to the fourth requirement of collateral estoppel, whether determination of the
issue was necessary to the final judgment, the record shows that the District Court’s findings as
to Birnbaum’s willfulness formed the basis for its conclusions in several significant respects.
These include with respect to the District Court’s determinations that Birnbaum’s conduct was in
bad faith and that his conduct amounted to the intentional trafficking in counterfeit marks. The
District Court’s findings with respect to Birnbaum’s willfulness also form the basis for that
court’s award of statutory damages and attorneys’ fees and costs. As a result, determination of
this issue was necessary to the District Court J udgment, and this requirement of collateral
estoppel is met.
Based on the entire record, the Court finds that Guggenheim has established that each of
the requirements of collateral estoppel has been met as to the District Court’s determination that
Birnbaum acted willfully. For these same reasons, the Court finds that Guggenheim has
established that there is no genuine dispute of material fact as to the first element of its Section
523(a)(6) claim, whether Birnbaum acted willfully.
Whether Guggenheim Has Shown that There Is No Genuine Dispute of Material Fact that
Birnbaum Acted Maliciously
The second element of a Section 523(a)(6) claim is whether the defendant’s conduct was
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malicious. To succeed on this claim, Guggenheim must establish that Birnbaum’s conduct was
not only willful but also malicious. And to succeed on this motion for summary judgment,
Guggenheim must establish that there is no genuine dispute of material fact as to Birnbaum’s
malicious conduct. Again, Guggenheim relies on the District Court J udgment and the principle
of collateral estoppel to show that there is no genuine dispute of material fact as to this element
of the claim.
This requires the Court to consider each of the requirements of collateral estoppel as they
apply to the maliciousness element of Guggenheim’s claim. That is, this Court must determine
whether it is substantially identical to issues determined by the District Court, whether the issue
was actually litigated in that forum, whether Birnbaum had a full and fair opportunity to litigate
the issue there, and whether it was necessary to the District Court J udgment. If these
requirements are met, Birnbaum will not be able to re-litigate that issue here.
The Bankruptcy Code does not define the term “malicious.” Personal animus is not
required; as the Second Circuit has concluded, the term “malicious” in this context means
“‘wrongful and without just cause or excuse, even in the absence of personal hatred, spite, or ill-
will.’” Ball, 451 F.3d at 69 (quoting Navistar, 94 F.3d at 87.) As one court observed, “[m]alice
need not be actual, but ‘may be constructive or implied . . . by the acts and conduct of the debtor
in the context of [the] surrounding circumstances.’” Wisell, 494 B.R. at 41 (citations omitted).
Guggenheim argues that, as found by the District Court and affirmed by the Second
Circuit, Birnbaum maliciously caused Guggenheim’s injuries when he repeatedly disregarded
the District Court’s orders by continuing to use Guggenheim’s marks. Guggenheim also cites
the District Court’s findings that “[Birnbaum’s] unlawful conduct has been knowing and
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intentional and there are no ‘extenuating circumstances’ for such conduct.” J udgment ¶ 54.
Birnbaum responds, as noted above, that Guggenheim is his mother’s family name, that
he has used the name Guggenheim throughout his life, and that his actions in using his family
name “at all times lacked malice . . . to cause injury.” Answer 7. And Birnbaum states that
Guggenheim does not allege and cannot prove actual injury or malice, “as is required to allege a
claim of willful or malicious injury” under Section 523(a)(6). Answer 14-15.
Here, as described above, the record shows that the District Court made a series of
findings as to Birnbaum’s intent and state of mind. These include the determination that
Birnbaum acted in bad faith, that his conduct constitutes the intentional trafficking in counterfeit
marks in violation of federal and New York law, and that Birnbaum’s conduct was willful,
intentional, knowing, and in bad faith. These findings led the District Court to enter temporary,
preliminary, and permanent injunctions against Birnbaum’s use of the Guggenheim name and
marks, and to award statutory damages as well as attorneys’ fees and costs. In particular, the
District Court found:
[Birnbaum’s] conduct constitutes the intentional trafficking in counterfeit marks
in violation of the Lanham Act and New York law, including 15 U.S.C.
§ 1116(d).
. . . Because [Birnbaum’s] conduct is willful, intentional, and in bad faith . . . the
Court finds that statutory damages in the amount of $250,000 per counterfeit
mark are appropriate under the circumstances of this case.
[Birnbaum’s] unlawful conduct has been knowing and intentional and there are
not ‘extenuating circumstances’ for such conduct. Plaintiffs are entitled to an
award of their reasonable attorneys’ fees and costs under the Lanham Act and
New York law.
J udgment ¶¶ 51, 53-54.
As to the first requirement of collateral estoppel, whether the issues are substantially
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identical in this action and the prior proceeding, courts have noted that for collateral estoppel to
apply in this context, “the non-bankruptcy court need not have made a finding of malice per se.
Rather, the bankruptcy court can infer from the prior factual findings whether a debtor’s pre-
bankruptcy conduct was ‘malicious’ sufficient to satisfy Section 523(a)(6).” Wisell, 494 B.R. at
42 (citation omitted). And as the court found in Ahmed, “[t]he facts supporting a finding that the
debtor’s conduct was malicious, specifically his ‘deliberate disregard’ of warnings [not to
engage in certain specific conduct] were found in the context of determining the willfulness of
his [trademark] infringement.” Ahmed, 359 B.R. at 43. Here, the record shows that the District
Court found that Birnbaum disregarded its orders and deliberately continued to use counterfeit
Guggenheim marks, and concluded that Birnbaum intentionally and willfully used the
Guggenheim marks. This equates with acting maliciously for purposes of Bankruptcy Code
Section 523(a)(6). For these reasons, these issues are substantially identical in this case and in
the District Court Action, and this requirement is met.
As to the second requirement of collateral estoppel, whether the issue was actually
litigated and determined in the prior proceeding, the record shows that the issues of Birnbaum’s
intent and state of mind were presented in the pleadings before the District Court and among the
matters decided by that court, including in the context of the District Court’s findings that
Birnbaum continued to use the Guggenheim marks in knowing violation of court orders. In
particular, the District Court described Birnbaum’s conduct as the “unauthorized use” of marks
“identical and similar” to Guggenheim marks, and as willful “acts undertaken with intent.”
J udgment ¶¶ 31, 53. For these reasons, the issue of maliciousness was actually litigated and
determined in the District Court Action, and this requirement is met.
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As to the third requirement of collateral estoppel, whether there was a full and fair
opportunity to litigate the issue, the record shows that, as with Birnbaum’s willfulness, the issue
of maliciousness was the subject of extensive proceedings in the District Court, in which
Birnbaum either participated or had the opportunity to participate. His participation included,
among other things, appearing at the preliminary injunction and contempt hearings, seeking and
receiving extensions of time to respond to discovery requests, and seeking but being denied a
modification of the District Court’s preliminary injunction. And as noted above, Birnbaum’s
assertion of his Fifth Amendment privilege against self-incrimination in the District Court
Action does not mean that he did not have a full and fair opportunity to litigate this issue, or that
he may not be barred from re-litigating the issue by the collateral estoppel doctrine. As a result,
Birnbaum had a full and fair opportunity to litigate the issue of whether he acted maliciously in
the District Court Action, and this requirement is also met.
As to the fourth requirement of collateral estoppel, whether determination of the issue
was necessary to the final judgment, the record shows that as with the element of willfulness, the
District Court’s findings as to Birnbaum’s malicious acts were necessary to several aspects of its
rulings. These include the determinations that Birnbaum “had a demonstrated history of willful
non-compliance with court orders,” and that he acted in bad faith and intentionally trafficked in
counterfeit marks. J udgment p. 9. The District Court’s determination that Birnbaum acted
maliciously also forms the basis for its award of statutory damages and attorneys’ fees and costs.
Accordingly, determination of this issue was necessary to the District Court’s final judgment,
and this requirement of collateral estoppel is met.
Based on the entire record, the Court finds that Guggenheim has established that each of
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the requirements of collateral estoppel has been met as to the District Court’s determination that
Birnbaum acted maliciously. For these same reasons, the Court finds that Guggenheim has
established that there is no genuine dispute of material fact as to the second element of its
Section 523(a)(6) claim, whether Birnbaum acted maliciously.
Whether Guggenheim Has Shown that There Is No Genuine Dispute of Material Fact that
Birnbaum’s Willful and Malicious Acts Injured Guggenheim or its Property
The third element of a Section 523(a)(6) claim is whether the debtor’s willful and
malicious conduct caused an injury to the plaintiff or the plaintiff’s property. To succeed on this
claim, Guggenheim must establish that Birnbaum’s willful and malicious acts injured
Guggenheim or its property. And to succeed on this motion for summary judgment,
Guggenheim must establish that there is no genuine dispute of material fact that Birnbaum’s
willful and malicious acts caused such an injury. Here too, Guggenheim relies on the District
Court J udgment and the collateral estoppel doctrine to demonstrate that there is no genuine
dispute of material fact as to this element of its claim.
This calls for the Court to examine the requirements of collateral estoppel as applied to
the injury element of Guggenheim’s claim. That is, this Court must determine that it is
substantially identical to issues determined by the District Court, that the issue was actually
litigated in that forum, that Birnbaum had a full and fair opportunity to litigate the issue there,
and that it was necessary to the District Court’s final determination that resulted in the J udgment.
If the requirements of collateral estoppel are met, then Birnbaum will be precluded from re-
litigating the issue here.
Guggenheim argues that, as found by the District Court and affirmed by the Second
Circuit, Birnbaum injured Guggenheim by holding himself out to be a member of the
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Guggenheim enterprise, and by successfully using the Guggenheim name and marks to recruit
and defraud investors. Guggenheim also argues that the District Court’s award of statutory
damages, which are warranted only in “exceptional” cases including those where a defendant’s
acts were willful and intentional, demonstrates that it was injured by Birnbaum’s willful and
malicious conduct. J udgment ¶ 53. And Guggenheim argues that because findings of fact on a
willful trademark infringer’s intentional conduct are identical to findings on the infringer’s intent
to cause injury, it has shown that Birnbaum injured Guggenheim by infringing its trademarks.
Birnbaum responds that Guggenheim “never proved that [he] personally did them any
harm or benefitted in any way from the use of [his] family name” and that “he never did
[Guggenheim] any harm whatsoever by his conduct.” Response ¶¶ 50, 52.
Here, the record shows that the District Court found that Birnbaum’s continued use of
Guggenheim’s marks in violation of the court’s preliminary injunction barring such use would
result in “immediate and irreparable injury” to Guggenheim. As a consequence, that court
entered the J udgment and Fees Order as an “appropriate” sanction. J udgment p. 10. The District
Court also found, among other things, that Birnbaum’s use of counterfeit Guggenheim marks
caused investor confusion, and that “[u]nless [Birnbaum is] permanently enjoined,
[Guggenheim] will continue to suffer irreparable injury . . . .” J udgment ¶ 53. For the same
reasons, the District Court directed Birnbaum and his co-defendants to “pay . . . statutory
damages for trademark counterfeiting,” as well as costs and attorneys’ fees. J udgment ¶ 4.
As to the first requirement of collateral estoppel, whether the issues are substantially
identical in this action and the prior proceeding, the record shows that the District Court made
several findings to the effect that Guggenheim was injured by Birnbaum’s willful and malicious
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use of its marks. These include the determinations that Birnbaum attempted in bad faith to trade
off of the goodwill and reputation of Guggenheim’s marks, that Guggenheim suffered irreparable
injury as a result of Birnbaum’s use of these marks, and that unless Birnbaum was permanently
enjoined from these acts, Guggenheim would continue to suffer such injury. These findings are
reflected in the District Court J udgment. For these reasons, the issue of injury is substantially
identical in this case and in the District Court Action, and this requirement is met.
As to the second requirement of collateral estoppel, whether the issue was actually
litigated and determined in the prior proceeding, the record shows that the issue of whether
Guggenheim was injured was “raised by the pleadings or otherwise placed in issue” in the
District Court from the outset of the case, including at the preliminary injunction hearing and the
contempt hearing, in which Birnbaum participated, as well as thereafter in the proceedings
leading to the District Court J udgment. As a result, the issue of whether Guggenheim was
injured by Birnbaum’s willful and malicious acts was actually litigated and determined in the
District Court Action, and this requirement is met.
As to the third requirement of collateral estoppel, whether there was a full and fair
opportunity to litigate the issue, the record shows that here too, the question of the extent and
nature of Guggenheim’s injury was presented to the District Court as early as the initial hearings
on preliminary injunctive relief, and Birnbaum both participated and had the opportunity to
participate in these proceedings. Birnbaum’s assertion of his Fifth Amendment privilege in the
District Court Action does not take away from the fact that he had a full and fair opportunity to
litigate the question of whether his actions injured Guggenheim or its property, and does not
prevent the application of collateral estoppel. As a result, Birnbaum had a full and fair
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opportunity to litigate the issue of whether his actions injured Guggenheim or its property, and
this requirement is met.
And finally, as to the fourth requirement of collateral estoppel, whether determination of
the issue was necessary to the final judgment, the record shows that the District Court’s findings
as to injury to Guggenheim or its property were essential to – and explicitly referenced in – the
J udgment, which concludes that “[u]nless [Birnbaum is] permanently enjoined, [Guggenheim]
will continue to suffer irreparable injury.” J udgment ¶ 52. The record also shows that the
District Court entered the J udgment and Fees Order as a sanction against Birnbaum based on
Guggenheim’s injuries. For these reasons, determination of this issue was necessary to the
District Court’s final judgment, and this requirement of collateral estoppel is met.
Based on the entire record, the Court finds that Guggenheim has established that each of
the requirements of collateral estoppel has been met as to the District Court’s determination that
Birnbaum’s willful and malicious acts injured Guggenheim or its property. For these same
reasons, the Court finds that Guggenheim has established that there is no genuine dispute of
material fact as to the third element of its Section 523(a)(6) claim, whether Birnbaum’s willful
and malicious acts injured Guggenheim or its property.
Conclusion
Based on the entire record, and for all the reasons reflected in the record and as set forth
in this Memorandum Decision, Guggenheim Capital, LLC and Guggenheim Partners, LLC have
established that they are entitled to summary judgment on their claim under Bankruptcy Code
Section 523(a)(6) that the District Court J udgment and Fees Order debts are not dischargeable in
this Chapter 7 bankruptcy case because they arise from a willful and malicious injury to
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Case 1-12-01011-ess Doc 34 Filed 07/29/14 Entered 07/29/14 13:18:17
Guggenheim or its property. An order in accordance with this Memorandum Decision will be
entered simultaneously herewith.
32
____________________________
Elizabeth S. Stong
United States Bankruptcy Judge
Dated: Brooklyn, New York
July 29, 2014
Case 1-12-01011-ess Doc 34 Filed 07/29/14 Entered 07/29/14 13:18:17

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